Country Report Netherlands

Outlook for 2008-09

• The governing coalition of the CDA, the PvdA and the Christian Union is suffering from a lack of direction and cohesion, but the Economist Intelligence Unit's central forecast is that it will remain in office until end-2009.
• Two right-wing parties, Proud of the Netherlands and the Freedom Party, will continue to put the government on the defensive, especially on immigration.
• The EU's Lisbon treaty is expected to be ratified by parliament later in 2008.
• There will be a moderate increase in the tax burden through higher indirect taxes, as well as measures targeted at the more affluent.
• Tighter liquidity conditions have not dented business confidence seriously yet, but consumer confidence is starting to fall. Investment should continue to grow healthily, but private consumption will grow more slowly.
• Following growth of 3% in 2006 and 3.5% in 2007, we forecast that growth will decelerate to 2% in 2008 and 1.7% in 2009, partly because of lower export growth, as Dutch trading partners see their economies slow too.
• Higher indirect taxes and commodity prices are forecast to push up inflation from an average of 1.6% in 2007 to 2.1% in 2008 and 2% in 2009.

Monthly review

• The Liberal Party backed its leader, Mark Rutte, in his efforts to regain voter support that has been lost to a new party, Proud of the Netherlands.
• Democrats66 have already benefited from a revival effect, which is attributed to the popularity of the party leader, Alexander Pechtold.
• The government has announced its proposals for a road pricing scheme. The system is set for introduction in stages from 2011, but parliament will still have to work out the details of the pricing, based on distance, time and location.
• The government has decided not to adjust the level of Wajong benefits (for disabled young people), but to increase efforts to move people off the scheme.
• GDP growth decelerated to a robust 3.4% year on year in the first quarter of 2008, but to only 0.2% quarter on quarter. Fixed investment, however, grew by 6% year on year, bucking the deceleration trend.
• Unemployment continued to fall in the three months to April 2008, although the rate of decline slowed, bringing the unemployment rate to 4.2%.
• Inflation (national measure) rebounded to 2.3% in May, having dipped to 2% in April, but Dutch inflation remains much lower than the euro area average.
• Exports grew by less than imports (in value terms) in the first quarter of 2008, resulting in a slight decline in the trade surplus.